The term “Punitive Damages” is often used when talking about legal topics. What exactly are punitive damages? For the most part, they are a way for the courts to punish a large company over and above the damages that they have caused. Punitive damages are awarded to a victim in order to change the future behavior of the company who is violating their contract. 
As an example, let’s say an insurance company owes a small amount of money to a plaintiff. If that insurance company ignores their customer a high percentage of them will just give up and and some will accept a payment much lower than they deserve. A very small percentage will seek justice through the court system. If these few, persistent, clients were only awarded the amount of money due to them the insurance company would win a larger victory. They would have avoided thousands of dollars in pay outs to the vast majority that never perused a claim through the courts. This makes it rewarding for a company to breach their contract with their clients and does not motivate a policy holder to seek justice. If the company has to pay out a few thousand dollars every now and then it becomes a good business decision for them take this tact. But, if the courts impose a much larger fine on these companies, in the thousands or millions of dollars, it will make them think twice before neglecting their responsibilities to their customers. And that is how punitive damages can help to mitigate insurance fraud.
